Suppliers’ Merger and Consumers' Welfare
This article explores the consequences of a suppliers' merger on consumers' welfare when the product is sold to consumers by independent retailers competing à la Cournot. The literature shows that under the standard assumptions of private contracting and passive beliefs, there is no impact at all. I show that this unintuitive result strongly depends on the implicit assumption that suppliers have infinite capacities of production. Indeed, assuming that suppliers face a capacity constraint and that retailers hold out-of-equilibrium beliefs compatible with this constraint, I show that the merger raises the price on the final market and reduces consumers' welfare.
Volume (Year): 15 (2012)
Issue (Month): 1 (Summer)
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- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
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IDEI Working Papers
202, Institut d'Économie Industrielle (IDEI), Toulouse.
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- Patrick Rey & Thibaud Verge, 2002. "Bilateral Control with Vertical Contracts," The Centre for Market and Public Organisation 02/048, Department of Economics, University of Bristol, UK.
- Eric Avenel, 2012. "Upstream Capacity Constraint and the Preservation of Monopoly Power in Private Bilateral Contracting," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 578-598, December.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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